IP Case Law Analysis

IP Assignment Clauses May be Enforceable Without Additional Consideration

July 10, 2012

What This Means To You

The enforceability of an IP assignment clause is governed by state law, so consider favorable state law when drafting a choice of law provision.

IP assignment clauses should contain broad, unambiguous language delineating the scope of intellectual property that belongs to the company.

Overview

In Preston v. Marathon Oil, after certifying the question to the Wyoming Supreme Court, the US Court of Appeals for the Federal Circuit (Federal Circuit) held that an IP assignment clause in an at-will employment contract could be valid without additional consideration. The court also held that the IP assignment clause captured employee’s invention because there was no evidence of conception and reduction to practice predating his employment.

Case Background

While working for Marathon Oil on coal bed methane extraction wells in Wyoming, Yale Preston, an at-will employee, shared an idea for a baffle system to improve the efficiency of the wells with a supervisor that resulted in Marathon Oil’s use of the technology. Both Preston and Marathon Oil filed patent applications related to the baffle system after Preston left Marathon Oil in 2003.

After both patents issued, Preston sued Marathon Oil for infringement of his patent. Marathon Oil counterclaimed, seeking a declaration that it owned Preston’s patent by virtue of an IP assignment clause in Preston’s employment contract. Preston argued that the IP assignment clause was void for lack of consideration, and that, even if it was valid, it did not capture his patented baffle system because he had invented it prior to his employment.

Decision Analysis

Citing a decision from the Wyoming Supreme Court, Preston argued that an IP assignment clause in an at-will employment contract was analogous to a non-compete clause which, in Wyoming and some other states, can require additional consideration. The court certified the question to the Wyoming Supreme Court, which held that additional consideration was required for non-compete clauses for public policy reasons not present in the context of an IP assignment clause.

Preston also argued that even if the IP assignment clause was valid, it did not apply because he had invented the patented baffle system before he started working for Marathon Oil. The court, however, determined that the plain language of the IP assignment clause applied to any invention that was conceived or reduced to practice during Preston’s employment. The court concluded that even if Preston had conceived of the baffle system prior to his employment, there was no evidence that he had anything more than a vague idea.
Takeaways

Because IP assignment clauses are governed by state law, it is important to research the applicable state law. Employers should think about generating an IP assignment clause that is broad and contains unambiguous language to define the scope of intellectual property captured by the clause.